El Impacto Real de la Publicidad en Internet

THE McKINSEY QUARTERLY 1997 NUMBER 3 45

HOW MUCH IMPACT is the Internet really having on advertising andmarketing? Is it just another emerging niche medium with some peculiar creative capabilities and constraints? Or might it

transform consumer marketing in the same way that network televisionrevolutionized consumer culture and commercial practice four or fivedecades ago?

Interviews with marketers reveal that few believe the Internet will changetheir approach to advertising. Most see it as little more than a comple-ment to traditional marketing practices, and don’t expect it to reduceexpenditure on broadcast and print media or change the form, pricing,or delivery of advertisements. Their view is probably a reaction to theearly hype about the Internet and the World Wide Web, which createdunrealistic short-term expectations among marketers and frustration withthe inadequacies of the delivery technologies among consumers.

We take a contrary view. We believe that Internet advertising will accountfor a growing proportion of overall advertising expenditure. Moreover,advertising – and marketing in general – will adopt practices firstdeveloped or deployed on the Internet. As the technology improves, theimpact of Internet advertising will increase and become easier to measure,and the gap between this new precise, interactive marketing capabilityand conventional “fuzzy” passive media will widen. Over the next fewyears, advertising agencies and consumer marketers will be underpressure to change their whole approach to marketing communications.

MARKETING

Will the Internet have as big an impact on advertising as radio and television did?

Most marketing executives say no

Here’s why they are wrong

We would like to acknowledge the contributions of Eric Simonson, Inder Soni, and JohnLeibovitz to this article.

Caroline Cartellieri and Varsha Rao are consultants, Andrew Parsons is a director, andMichael Zeisser is a principal in McKinsey’s New York oƒfice. Copyright © 1997 McKinsey& Company. All rights reserved.

Caroline Cartellieri, Andrew J. Parsons, Varsha Rao, and Michael P. Zeisser

The real impact of Internet advertising

Marketers will become more accountable for their results, and they will paymore attention to building a total customer relationship. Oƒfering consumersvalue in return for information will become vital in eliciting their preferences,which in turn will be critical to customizing advertising.* And companies’entire marketing organizations will be progressively redesigned to reflectinteractions with consumers on the Internet.

For ad agencies, fees based on results will become standard. The economicsof Internet advertising are likely to make current business models obsolete.New capabilities will be required as creative production speeds up andbecomes more closely integrated with marketing activity. A deep under-standing of enabling technologies will become a prerequisite for fresh formsof advertising.

Our views on the evolution of Internet advertising and its impact on tradi-tional marketing may seem provocative to some, premature to others. Butthe intriguing marketing experiments taking place on and oƒf the Internetsuggest it is time for consumer marketers to begin looking to networks fornew ways of thinking about the marketing theories and approaches on whichthey have long relied – and to begin capturing the lessons Internet advertisingholds for all their advertising practices, online and conventional.

Caution: Changes ahead

Looking at today’s Internet advertising to predict what tomorrow will bringis about as helpful as using a rear-view mirror to watch the road ahead. Buta point of view about what online advertising will look like in three to fiveyears’ time can and should influence current management decisions abouthow to invest marketing communication dollars on the Internet. A number offundamental forces are currently reshaping Internet advertising: the near-daily emergence of new technologies that improve measurement, targeting,and data interpretation; the strenuous eƒforts of primarily entrepreneurialmarketers to make business use of the Web; and the establishment of patternsin consumers’ use of these new interactive networks. Thanks to the impact ofthese forces, tomorrow’s ads will diƒfer from today’s in the shape they take, inthe metrics available for gauging their eƒfectiveness, and in the pricingstructure that governs their purchase and sale.

New shapesThe first and most obvious change in advertising will be in what consumerssee on their screens. Ads are likely to change in terms of their content, thetype of customization they employ, and their delivery to the consumer.

THE REAL IMPACT OF INTERNET ADVERTISING

46 THE McKINSEY QUARTERLY 1997 NUMBER 3

≠ For more on this subject, see Andrew V. Abela and A. M. Sacconaghi, Jr, “Value exchange: Thesecret of building customer relationships on line,” The McKinsey Quarterly, 1997 Number 2, pp. 216–19, and John Hagel III and Jeffrey F. Rayport, “The coming battle for customerinformation,” pp. 64–76.

ContentAspirations to transcend today’s form of Internet advertising will first berealized in the content of ads. The development of new technologies such as virtual reality and chat, coupled with consumers’ growing preference for material that is directly valuable to them, is driving the emergence of new forms of content. Three main types are on the horizon: experiential,transaction-oriented, and sponsored content.

Experiential content will allow consumers to “experience” the ownershipof a product, service, or brand. The best current examples let the user testout a product. Sharp’s Web site oƒfers a personal tour of the Zaurus personaldigital assistant in which consumers can input calendar or address infor-mation exactly as they would if they used the product in real life. At TheGap’s site, customers can “try on” outfits and mix and match separates fromthe current range. In the future, technologies such as virtual reality will makeads even more experiential: customers willfeel as though they are test-driving a new car,or walking down the aisles of a grocery store.

Transaction-oriented content will inviteconsumers to make a purchase directly froman ad. Advertising content will become in-creasingly oriented toward transactions. Indeed, the Internet may alreadybe changing consumers’ buying behavior, particularly for consideredpurchases such as cars. Prospective car buyers who are looking for productinformation before making a decision can obtain more information morequickly through the Internet than by any other means currently available.Having done their research in advance, they are more ready to buy at thepoint when they actually encounter a manufacturer or seller.

The implication for marketers is simple: they need to make it possible forconsumers to carry out transactions easily and seamlessly, or risk losing salesto competitors. Consider Casio, which uses Virtual Tag technology developedby First Virtual to enable customers to make purchases from an Internetbanner ad. An Internet user can learn about Casio products, purchase a watchon line, and select the means of delivery without ever leaving the banner.

Sponsored content will blur the line between editorial matter and adver-tising. A lot of sponsored content already exists on the Internet – forexample, Nissan sponsors weekly soccer tips on Parent Soup in associationwith the American Youth Soccer Association – but by and large it tends toresemble the “brought to you by ABC” model familiar from traditionalmedia. The emergence of advanced forms of hybrid commercial–editorialcontent will be driven by consumers’ ability to “tune out” straightforwardcommercial messages, be they banners, interstitials (ads that pop up while



Virtual reality will make ads even more experiential:

customers will feel as thoughthey are test-driving a new car


The Internet has already become animportant standalone advertising medium;

moreover, many of the missing links it needsin order to achieve scale are now being forged.

It’s already important…The Web presents great advertisingopportunities for marketers because of itscontinuing growth, its user demographics, itseffectiveness, and its cost-competitiveness.

Growth in usage. The overall Webpopulation is reaching critical mass. Recentsurveys show there are 25 to 40 million adultWeb users in the United States – betweenone-eighth and one-fifth of the population.Twenty-five million Americans use the Web at least once a week according to one source,and 8.4 million are daily users. The averageuser spends 8.6 hours a month on line.

Audience profile. The demographics ofInternet users are broadening, but remainattractive. More women are now using theInternet: one survey puts the figure at 47percent, another at 38 percent. In financialterms, 91 percent of those who used the Web in the past six months have householdincomes above $60,000 – almost double theaverage US household income of $31,000.

Marketers pursuing certain segments of thepopulation are finding the Internet increasinglyuseful. For those interested in, say, Americanmen aged 35 to 44 with incomes over$75,000, the Web can provide access toabout 2 million – over 40 percent of the targetdemographic segment, and a critical mass initself (Exhibit A).

Higher effectiveness. Studies have shown that the Internet is reasonably good at achieving standard advertising objectivessuch as shaping attitudes. However, it also hascapabilities that traditional media cannot match.Features that make the Internet a superiormedium include its addressability, its interactivity,and its scope for customization. Advertiserscan do things on the Internet that are impossiblein traditional media: identify individual users,target and talk to them one at a time, andengage in a genuine two-way dialogue.

Competitive efficiency. In terms ofadvertising economics, the Internet canalready compete with existing media, both inresponse as measured by click-throughs and in exposure as measured by CPM (Exhibit B).Moreover, the Internet’s economics look better and better the more precisely a targetconsumer segment is defined. The cost to an

WHY THE INTERNET IS A BETTER AD VEHICLETHAN YOU THINK

Exhibit A

Penetration approaches critical mass

Students and young earners (aged 18–24)

Young women (25–34) earning more than $20,000

Young men (25–34) earning more than $40,000

Men (35–44) earning more than $75,000

Men (45–64) earning more than $75,000 35

43

26

21

20%5.0

3.3

2.0

2.6

2.2

Example: United States, Spring 1997

Target group

Number using the Internet in 30 days prior to survey Millions of users

Percentage of total target segment

Source: Simmons database; McKinsey analysis



Internet advertiser of reaching families thatearn over $70,000 and own a foreign car, for instance, can be less than a quarter thecost of using a specialty magazine such asCar and Driver (Exhibit C).

…and it’s still improvingThe major factors limiting the growth ofInternet advertising are being addressed.

Measurement. Like traditional media, the Internet needs consistent metrics andauditing in order to gain broad acceptancefrom marketers. Both are emerging slowly,driven by old players such as Nielsen and new ones such as WebTrack.

Pricing and placement standards.Advertisers and agencies cannot afford to produce a different ad and negotiate a different price for every site. Standards for size, position, content, and pricing are badly needed and are now being developed;

an example is CASIE, the Coalition forAdvertising Supported Information andEntertainment, a joint project of theAssociation of National Advertisers and theAmerican Association of Advertising Agencies.

Emergence of placement networks. Unless they place their ads on one of the few highly trafficked sites, advertisers find it difficult to ensure that sufficient people see them. Responding to advertisers’ need for scale, placement networks such asDoubleClick do the aggregating for them,making sure that a specified number ofpeople will be exposed to their ads.

Exhibit B

Competitiveness in cost per thousand

Direct marketing

Web

Niche magazine

Newspaper

General magazine

Network TV

Cable TV

Radio

Billboard

5 10 15 20 50 100 500+Cost per thousand, $

Exhibit C

Competitiveness in reaching target segment

Car and Driver

New York Times

NBC Network News

Pathfinder (Internet)

Cost per thousand, $

720

456

217

176

440

287

117

133

79

65

6

22

Base cost

Income above $70,000; with children…

By demographic

…and a foreign car

Source: Interviews; Simmons database; Paul Kagan Associates; McKinsey analysis


users wait for a requested Web page to appear), or standard forms ofsponsorship, and by advertisers’ desire to influence attitudes in moresubtle ways.

By way of analogy, consider the growing use of product placement in filmsand television (James Bond drives a BMW Z3 in his latest movie) as market-ers seek to make their oƒferings stand out from the clutter of ads and breakthrough the cognitive filters that allow consumers to discount ordinarycommercials. The network environment oƒfers ample scope for hybridcontent: entire sites can be funded and co-managed by advertisers (as withProcter & Gamble and ParentTime), while avatar technologies* bringadvertisers into chat rooms. However, the issue of editorial independenceand the possibility of consumer rejection or backlash may ultimately set limitson the pursuit of this approach.

CustomizationAnyone who has been oƒfered a credit card they already hold can appreciatethe need for greater customization or “addressability” in mass-market adver-tising, and even in direct mail. Indeed, the level of response that advertisersreceive largely depends on the accurate and timely targeting of messages, as

do the number of transactions and the degreeof loyalty that are generated.

The Internet is supposed to enable marketersat last to target their oƒfers to that elusive“segment of one.” Yet advertising on theInternet has so far been targeted mainly on

the basis of editorial content, just as it is in traditional media. Part of thereason is technical, though the development of tracking soƒtware that allowsads to be delivered only to target audiences is overcoming this obstacle.Consumers’ reticence has been a further barrier, but as Internet users growmore willing to provide information about themselves, two types of custom-ized content will emerge.

First, content will be customized by means of information inferred about users.The Ultramatch technology recently launched by Infoseek, to take one example,makes it possible to target those Web users who are most likely to respond to agiven ad. Based on neural networking technology, Ultramatch observes users’behavior when they put out queries and explore subjects, collecting the resultsin its database. Advertisers using the service can select individuals according totheir interests and thus pitch their campaign to a receptive audience. Ultramatchalso allows them to ascertain which individuals are responding to ads, and tomove the ads to places where they will attract similar users.



≠ An avatar is a virtual character that can graphically represent a user on the computer screen.

Consumers seem to be willing to release information aboutthemselves as long as they are the prime beneficiaries

Second, ads will be customized on the basis of information voluntarilyprovided by users. The key to making this approach work will be toovercome consumers’ desire for privacy or anonymity by oƒfering themrewards for personal details in the form of special information, discounts, orpromotions. On ParentTime, for example, users who enter the ages of theirchildren receive relevant care information as well as Pampers ads geared tothose age groups. Experience suggests that consumers are willing to releaseinformation about themselves as long as they are the prime beneficiaries.Organizations such as etrust (an initiative sponsored by leading companies todevelop electronic commerce) and the Internet Marketing Council take asimilar view. The IMC requires marketers to provide a “giveaway” or discountbefore they can gain certification. This scheme is specifically designed toprevent information provided by consumers from being misused in e-mail.

DeliveryThe recent hype about “push” technology on the Internet might suggestthat this will be the dominant vehicle for delivering advertising on theWeb. We believe the reality will be more integrated, combining today’s“pull” format Web sites with “push” technology such as PointCast todeliver ads to people according to their interests. Triggered banners (adsthat appear when certain key words are mentioned) and interstitials areearly examples that point the way. Consider how one automaker’s adsare pushed to chatroom participants when the topic of cars comes up, orhow a user waiting for content to be downloaded is sent an ad related tothat content. Marketers must ask themselves a number of questions:What is the right balance? Where can push technology be exploited mosteffectively? How much push are users willing to take before they beginto tune out?

As online advertising develops, advertisers willdiscover that the Internet is the only medium thatcan deliver certain types of message, such asmultisensory and interactive ads. These new formswill allow advertisers to achieve several objectives –some of them unattainable via conventional media– simultaneously (Exhibit 1). They are likely tomake Internet advertising more important in theoverall marketing mix as marketers capitalize ontheir unique capabilities. At the same time, ourglimpse of the emerging future casts doubt on themerit of current heavy investments in big brandsites that require content to be “pulled,” or inbanner ads that – like most on the Internet today– merely replicate the forms of advertising that existin the physical world.



Exhibit 1

Internet advertising objectives

Shaping attitudes

Delivering content

Soliciting response

Enabling transaction

Encouraging retention

One-way communication

Build brand or product awareness

Detailed product or service information

Communication is typically “pulled” by recipient

Two-way communication

Response can vary from click-through to information exchange to actual purchase

Two-way interaction

Online sale

Continuous two-way interaction

Customized for recipient

New metricsThe Internet aƒfords marketers an unprecedented opportunity to measurethe eƒfectiveness of their advertising and learn about their viewers. Thecapacity to measure impact sets the Internet apart from other media.Measurements available for television, for example, estimate the total size ofan audience; what they don’t do is tell an advertiser how many people actuallysaw an ad, or what impact it had. On the Internet, by contrast, marketers are able to track click-throughs, page views, and leads generated in close to

real time. The result: measurements that are more precise and meaningful than anythingavailable in traditional media.

The emergence of these new metrics willaƒfect not only ads themselves, but also theway that marketers and agencies develop

them. First, more precise measurements will yield better insights into theeƒfectiveness of advertising spend. It will be easier to identify ads that don’twork, and to find out why. Advertisers will also start to expect the contentof ads to be renewed more frequently in response to audience reaction. Anew product from Infoseek oƒfers a hint of things to come. Copy Testing in aBox is a tool that combines the immediate feedback of the Internet withsophisticated targeting technology to allow marketers to refocus their Internetcampaigns to the most responsive customer segments within a matter of days.

Second, advertisers will be able to assess the impact of their ads earlier inthe spending cycle. As a result, they will have the flexibility to launch androll out a campaign in such a way that it can be changed before most of themoney is committed. This will aƒfect the very process of creating Internetads, and perhaps spur advertisers and agencies to devise new ways oforganizing around it.

New pricingWhereas marketers tend to have fairly uniform objectives in traditional media,such as shaping attitudes in television or obtaining responses in direct mail,the Internet, as we have seen, allows them to pursue several diƒferent goalssimultaneously. In the same way, the standard types of pricing used intraditional media, such as CPM (the cost of exposing a message to a thousandviewers of TV or readers of print), will give way on the Internet to pricingthat varies as widely as the objectives of the ads themselves. Indeed, thetechnology can support several pricing mechanisms at once: pay per click-through, lead, transaction, dollar spend, or conventional CPM. This kind ofvariegated pricing is already appearing in the marketplace: P&G has pushedfor pricing per click-through; CD Now pays Web sites commissions on thetransactions they generate; and Destination Florida pays according to leadsgenerated. Similarly, DoubleClick is introducing an advertising network,



Results-based pricing givesmarketers the opportunity to shiƒt some of the risk of failure to sites or agencies

DoubleClick Direct, whose rates are based on results,and has already signed up clients including Alta Vistaand GTE’s Internet service.

Because of these factors, pricing for Internet adver-tising is likely to be multi-tiered, based on results, andtied to marketers’ objectives. At least three pricingmechanisms will coexist: pricing by exposure,response, and action (Exhibit 2).

Pricing per exposure – for instance, via a rate cardbased on CPM – will prevail for ads placed on the Internet to generateawareness of a product or brand. Over time, this form of pricing shouldbecome more refined. As measurability and metering improve, advertiserswill want to pay only for impressions on their target customers, whilepublishers will eagerly search for ways to extract premium exposure rates.The result is likely to be the establishment of an additional tier of “eƒfective”CPM rates.

Pricing per response will establish itself as the standard for simple consumerresponses such as click-through. Prices will vary according to the types of usera site attracts and how much advertisers are willing to pay for access to them.

Pricing per action is similar, but more elaborate. A site publisher mightcharge an advertiser more for a consumer who downloads a piece of soƒtwareor provides some demographic information, say, than for one who merelyclicks on a banner. We believe that the ability of Web publishers to chargeadvertisers for the true value they receive is likely to make the diƒferencebetween profit and loss. The price for a lead generated, for instance, couldreflect the prospect’s potential lifetime value; if it did, sites would chargeautomotive OEMs and white goods manufacturers diƒferent prices forprospect leads. As a result, a fee per action or sales commission is likely toemerge as a major pricing mechanism for Internet advertising over time.

How quickly and how far these models take hold in the near term will dependon how risk is shared between marketers, agencies, and sites. Results-basedpricing gives marketers the opportunity to shiƒt some of the risk of failureto sites or agencies. Publishers and broadcasters in traditional media haveusually been loath to take on this kind of risk. However, Internet publishersshould find risk sharing attractive if it is appropriately priced, as it couldboost the advertising revenues on which their success depends.

Pricing in general is fraught with issues. Will site publishers demand a degreeof control over the creative execution of ads to ensure quality, for instance?We believe that the sharing of risk in Internet advertising will ultimately be



Exhibit 2

Emerging Internet pricing models

Pricing per exposure

Pricing per response

Pricing per action

Impression

Unit of time spent

Metrics

Click-through

Download

Information exchange

Transactions

determined by the prevailing balance of power, which will vary fromadvertiser to advertiser and site to site, and shiƒt over time. Large, well-known,“safe” advertisers may be able to secure results-based pricing more easilythan others, particularly at times when site publishers are struggling to maketheir economics work.

It will be in the best interests of marketers, site publishers, and even agenciesto prevent the lowest common denominator setting the industry’s pricingstandard. To settle for a simplistic, unsophisticated, “one size fits all” pricingscheme would mean leaving a lot of money on the table. The widespreadacceptance of multi-tiered, performance-based pricing will make the Internetboth distinctive and highly lucrative as an advertising medium.

The spillover eƒfect

The changes now taking place in the shape, measurement, and pricing ofadvertising on the Internet may seem dramatic enough in themselves, butwe believe they will have a much broader impact on marketing practices ingeneral. This spillover eƒfect will occur for four reasons.

First, new ways of advertising on line will inspire new creative approacheselsewhere. Second, the Internet will prompt marketers to reevaluate their useof traditional media. Third, Internet advertising will help marketers toimprove their understanding of consumers’ needs, preferences, and productusage. Finally, once marketers get a taste for the measurability of Internetads and the tailored pricing it enables, their expectations of the eƒfectivenessand measurability of other media will rise.

New creative approachesThe timeliness and direct tone of advertising on the Internet will increasinglyinspire marketers operating in other media. Seeing the daily updates ofinformation that the Web makes possible and the lengths to which onlineadvertisers must go in order to keep users’ interest (for instance, renewingbanners weekly) may sharpen their appetite for replicating Internet practiceson TV and in print.

The notion that creative approaches pioneered on the Web will spill over tomore traditional media should surprise few. Historically, the emergence ofnew media has always prompted content changes in existing media. Considerhow print changed aƒter radio, and later television, arrived on the scene.

Fidelity Investments recently attempted to mimic the immediacy of theInternet in its television advertising. It refreshed its ads on a daily basis byincorporating current news headlines. However, the campaign met withmixed success, perhaps because it lacked a distinctive point of view.



Marketers’ adoption of creative techniques pioneered on the Internet willgrow as technologies like broadband, WebTV, and virtual reality begin toinfluence traditional media. Wink and Worldgate are developing tech-nologies that allow viewers to “save” a com-mercial to watch later, or to obtain moredetailed information. These technologies arein their early test stages on television.

The enormous creative flexibility oƒfered bythe Internet will increase pressure for morechoices of delivery in traditional media. The (probably apocryphal) story ofHelena Rubenstein asking to buy an extra three seconds for a 30-second spotto realize her creative vision suggests how we may start to question acceptedstandards and constraints in traditional media.

Marketers may also need to reexamine the theories that underpin their adver-tising practices. As we noted, online advertisers have found that banners mustbe renewed frequently if consumers are to keep clicking. Their experiencedefies the conventional wisdom in advertising that any ad must be seen atleast four times to make an impression. On the Internet, greater impact canbe achieved by showing a wider range of ads that are repeated less oƒten.Insights like this cast doubt on the eƒfectiveness of current televisioncampaigns, most of which are still based on old ideas of frequency.

Reevaluating media investmentsEveryone has heard the advertiser’s lament: “I know 50 percent of my adver-tising is working; I just don’t know which 50 percent.” The greater measur-ability of Internet advertising will prompt marketers to reevaluate all theirinvestments in media, especially in the addressable categories of print anddirect marketing. Not only are response rates oƒten higher in Internet adver-tising, but the cost of reaching target customers can be lower, with betterinformation received in return. As a result, we may well see a migration oftargeted marketing spending from direct mail and other traditional mediato the Internet.

Consider a recent example. AT&T used the Internet to generate awareness ofand shape attitudes toward its toll-free collect-call service, which is mainlytargeted at 16- to 24-year-olds. The company had previously found thisaudience diƒficult to reach cost-eƒfectively through print or broadcast media.The results of the online eƒfort were excellent. Top-of-mind awarenessincreased by over 30 percent, and AT&T opted to replace its print advertisingwith an Internet campaign.

The traditional approach to customer response and lead generation has been to use ads in trade magazines and customer response or “bingo” cards.



The greater measurability of Internet advertising will

prompt marketers to reevaluateall their investments in media

However, findings announced by one large publisher of trade titles indicatethat more than two-thirds of bingo cards either go unanswered or are notresponded to promptly because of the time it takes to qualify and manageleads. The study suggests that the Web is an excellent tool for generating

quality leads and may even supersede bingocards in time.

Migration of this kind will reallocate theslices of the advertising pie. Interviews weconducted with marketers reveal that mostbelieve their initial spending on the Internetdid not come at the expense of other media(in other words, their overall advertisingbudget grew). But many expect that futureincreases in their Internet expenditure willbe taken from other areas, probably printand/or direct marketing. They also see theirInternet advertising budgets growing muchfaster than their traditional media budgets.

Migration may also take place in non-addressable media spending. Striking levels

of media displacement are already evident among Internet users. Mostnotably, TV viewing has declined among a third of adult Internet users(Exhibit 3). Similarly, in a recent Wall Street Journal poll, 21 percent ofrespondents cited spending more time on their computer or in using onlineservices as a reason for watching the major TV networks less than they did five years earlier. When marketers accept the idea that brand building canbe accomplished on line, some spending on TV, radio, billboards, and othernon-addressable media may migrate to the Internet.

Getting closer to the consumerWe believe marketers will soon start to use the Internet as a kind of testbedfor campaigns planned for print, TV, or radio. One leading-edge marketer,London International, the maker of Durex condoms, is already trying outadvertising concepts on its Web site before transferring them to other mediawhere their eƒfectiveness is harder to track. It is testing three conceptsultimately destined for conventional media: “On-line Lovers,” “Dr Dilemma,”and “The Nurse.” By monitoring pages selected, click-throughs, responsesgenerated, and other indicators, the company is able to discover which partsof a prospective campaign work and which don’t, thereby reducing the risk oflaunching the equivalent of a box-oƒfice flop.

Conducting market research and obtaining feedback from consumers canbe expensive and diƒficult. The Internet oƒfers cost-eƒfective alternatives to



Exhibit 3

Decline in usage of traditional media

TV

Long-distance phone

Videos

Magazines

Newspapers

Other PC applications

Radio

3532

2522

1519

1316

1216

1016

1010

Percentage of adult Internet users surveyed who say their usage of traditional media has declined

1995 1997

Source: FIND/SVP 1997 American Internet User Survey

conventional methods, and may yield more revealing information. Several ofthe marketers we interviewed said that their presence on the Web had taughtthem a tremendous amount about their customers’ views of their productsand services. They maintain that the Web oƒfers a non-judgmental way ofproviding feedback and ideas, and is less intimidating for consumers to usethan standard toll-free numbers.

Marketers at Fidelity, London International, and Coors found that users oftoll-free numbers mainly called to ask questions about products. On the otherhand, Internet users, even when given answers to the most frequently askedquestions, would oƒten provide feedback about the quality of a product, newvariations on it, and ways that it might be changed. To be sure, some of theadditional interaction may be down to the diƒferent demographic profile ofInternet users, but gathering information of this kind is becoming anincreasingly important way to use the Web.

To gather deeper feedback, marketers are experimenting with Internet focusgroups. LiveWorld has already hosted several sessions for NFO, a companyspecializing in this area. The advantage of conducting a focus group on lineis that participants are anonymous and can speak their mind withoutworrying what others in the group think. In addition, geographically dis-persed participants can be assembled at a fraction of the usual cost. LondonInternational is planning to conduct an online focus group to assess theeƒfectiveness of its Web eƒforts in the near future.

Finally, the opportunities for testing new product ideas on the Internet arelegion, particularly for electronic or intangible items such as magazine covers,entertainment concepts, and personal financial services. The possibilities arejust beginning to be exploited.

Rising expectationsTwo features of Internet advertising – the measurability of its impact andthe probability of some form of results-based pricing emerging – are likely toraise marketers’ expectations of traditional media. If they do, pressure maybuild for a more accurate measurement system or a shorter measurementcycle. The demand for greater accuracy in measurement is already comingfrom the broadcast networks in any case. The coding technology tests beingcarried out by SMART (the emerging competitor to Nielsen), by Nielsenitself, and by its joint eƒfort with Lucent to develop Media TraX indicate thatimprovements are technically feasible.

In fact, it would not be surprising if new measurement tools and tech-niques originally designed for the Internet were to spill over and beapplied to traditional media in the not so distant future. Moreover, inthose traditional media that are already more measurable, such as print,



we foresee increasing pressure from advertisers for results-based or tieredpricing like that oƒfered on the Internet.

The developments we have described are necessarily speculative, and maynot materialize as broadly or as quickly as we suggest. All the same, they areworth watching out for because of their implications. Most of the mediaindustry is aƒfected by the billions of dollars spent every year on consumermarketing. If key advertisers were to reallocate their media budgets, theimpact on traditional media could be profound.

As the aspirations, techniques, and expectations associated with Internetadvertising spill over into traditional media, both marketers and advertisingagencies will have to rethink the capabilities they bring to bear on sellingproducts and services.

Implications for marketers

The growing importance of Internet advertising and its eƒfect on conventionalmarketing will have profound implications for practitioners. First, the Internetmodel will set new standards for building relationships in the physical world,challenging many current practices and expectations. Second, a new concept,value exchange, will emerge as a core marketing capability. Finally, the movetoward organizational structures and processes designed around consumers’experiences with specific products or services will accelerate further.

New standards in relationship managementThe Internet will set new standards for total relationship management in both breadth and depth. “Breadth” means that a relationship willincreasingly last for the entire ownership experience, including the timebefore and aƒter the purchase of the product or service. Consider Coors,which used consumer feedback received via the Web during both thedevelopment and promotion of its beverage Zima – thus involving customersat all stages in the product life cycle.

“Depth” reflects the degree of interaction with consumers at any given pointin their experience of a product. The book retailer Amazon.com, for instance,is beginning to use the information it gleans from customers to create value-added services such as suggestions about books that a particular reader mightenjoy. This raises the bar for competitors on the Internet and in the physicalworld, posing a challenge that other players must meet if they are to retaincustomers’ loyalty.

The Internet’s role in consumer relationship management has importantconsequences for marketers. Network-based interactions must be integratedinto the rest of a business, with all that this entails.



If car purchasers make fewer trips to the showroom, say, doing their ownonline research into diƒferent models instead of talking to salespeople, dealerswill need to rethink the way they manage the whole consumer relationship.Eventually, customers may go to them only to place an order; at this point, therole dealerships play may no longer justify their cost, and they will have tofind new ways to oƒfer buyers value if they are not to disappear. Moreover, asconsumers’ behavior changes, so will the skills that salespeople need. Andhow are those salespeople going to be compensated when consumers maketheir purchases through channels other than dealerships?

Design and funding is another key area. If the Internet’s role is to growbeyond advertising, the design of online activities should probably not beconstrained by the priorities of a single functional area such as marketing,or by the limitations of the marketing communications budget.

Value exchange as a core capabilityMuch of the Internet’s potential relies on the creation of a dialogue betweenconsumer and marketer in which information is exchanged for value.Marketers need to develop the new skill of rewarding consumers for givingthem access to personal information such as who they are, what they like,and what they buy. This reward may take the form of discounts towardfuture purchases, or benefits such as valuable information or a personalizedproduct or service.

This process of value exchange will become critical as new standards arecreated to protect consumers’ privacy. The proposal announced by Netscapein May 1997 to capture information on consumers’ hard drives rather than onmarketers’ computers marks a step in a new direction with its implicitacknowledgement that consumers will “own” information about themselvesand control the release of that information to marketers. The demand forvalue among consumers is likely to grow as they become aware of how highlymarketers prize their demographic profiles, product preferences, andtransaction histories.

A few marketers are beginning to manage this process eƒfectively. Inexchange for basic information such as name, address, age, and income,Vogue provides readers with discounts, special oƒfers, and previews offorthcoming articles. Saturn’s approach is to oƒfer convenient access toinformation. Consumers who reveal a small amount of information aboutthemselves are able to use Saturn’s interactive pricing center to researchnew cars, saving them trips to a showroom.

Organizations centered on consumersAs the Web merges marketing with other business processes such as customerservice, it will put more pressure on the organization of most marketers. The



coming of age of interactive networks will accelerate the move toward neworganizational models in which marketers will structure their various func-tional capabilities around an integrated customer front end.

For a real-life example, take the insurance company USAA. Its customercenter receives and manages all communications with consumers, whetherdirect via telephone, mail, and the Internet, or indirect via intermediaries.The rest of the organization revolves around the customer center. Sophisti-cated information systems help the company to process interactions andmaximize their value.

The benefits are many. Customers feel that USAA knows them better, and thecompany is quick to respond to a complaint or learn about important marketchanges such as a cut in a competitor’s price in a particular territory.

As more and more companies reorganize themselves around their customers,intranets linked to the Internet will become crucial. They will make it econ-omically feasible for managers within an organization to have more informa-tion about consumers – and more interactions with them – than ever before.

Implications for agencies

The rise of Internet advertising, with its unique economics, may well call thevalidity of current business models and processes into question. It will alsocompel agencies to rethink the way they create and develop campaigns, andthe skills and capabilities they need to survive.

New business modelSo diƒferent are the revenues generated by conventional and Internetadvertisements that traditional agencies will have to think carefully abouttheir approach to online advertising if they are to pursue it profitably. Atpresent, most agencies incur high fixed costs in developing campaigns. Bigcreative teams and the like were fine in the days when agencies could rely onthe commissions they earned from large media buys associated with a smallnumber of creative executions. On the Internet, however, this cost structureis inverted: the creative element of the total advertising cost is much larger inrelation to the media element. The resulting commissions will no longer besuƒficient to cover agencies’ high operating costs.

We believe that traditional agency business models simply will not work forInternet advertising. A trend toward retainer compensation is already emerging.Agencies may well seek to enhance their revenue streams by taking a cut of theresults of their eƒforts in the shape of a commission on leads or sales generated.In future, agencies will increasingly share in the risk of their advertising insteadof – as they do today – leaving all of it to be borne by marketers.



Compensation models will be transformed. The measurability of Internetadvertising makes results-based pricing more feasible than in any othermedia, as we have seen. Some examples are already in evidence. Site Specificis using performance-based contracts for clients including Duracell, CUCInternational, and Intuit’s TurboTax division. Though these arrangementsare not yet making it any money, they are expected to do so as advertisingeƒfectiveness increases. In time, results-based compensation will probablyspill over into traditional media as the measurement of advertising impactimproves. It will then have its most profound impact, aƒfecting agencies’ corebusiness and revenue source.

New capabilitiesThis vision of the future calls agencies’ current capabilities into question.Many have seen themselves as the guardian angel of the brands theyrepresent. But agencies have a patchy record of orchestrating brand-buildingactivities across the full range of marketing disciplines: media advertising,direct mail, promotions, and so on. The emergence of interactive mediameans that agencies must not only manage a broader and more complex mixof marketing tools, but also master radicallydiƒferent skills. Three main gaps will need tobe filled:

• Inform creative execution with a deeperunderstanding of enabling interactivetechnologies. Such an understanding scarce-ly exists in agencies today, except in some of the more specialized enterprisessuch as Site Specific and AGENCY.COM. Traditional agencies may find theirtechnological and creative skills are not suƒficiently integrated to competewith the specialist Internet ad agencies, which enjoy a higher profile andmore confidence among marketers in this area of work.

• Integrate one-way and response-oriented campaign design skills. Inter-active advertising blurs the boundaries between traditional advertising, directmarketing, and customer services – normally separate preserves run by dif-ferent individuals. Agencies will need to learn to integrate these skills in theirdesign eƒforts.

• Increase the speed and responsiveness of creative production. Theimmediacy of interactive networks will make growing demands on the paceand frequency of creative production. Agencies are currently organized aroundwork processes with relatively generous cycle times. Today, it is acceptable totake three to six months to design one campaign, and to run it for up to twoyears. Tomorrow, a campaign with 300 one-on-one executions will have to bedesigned in two to three months, and adapted continuously in response to real-time consumer feedback.



Interactive advertising blurs theboundaries between traditionaladvertising, direct marketing,

and customer services

In summary, the future holds many challenges for agencies. The emergence ofnew business models and the need for new capabilities are likely to shake upan industry that has been under pressure for some time. Some agencies haveshown that they can customize their processes and economics to specificindustry needs like those of grocery retailers or auto dealers. Now they mustlearn to institutionalize these capabilities within their organizations or spinoƒf a cluster of flexible, technology-savvy boutiques with low fixed costs.Viewed another way, the emergence of Internet advertising may representan opportunity for renewal – a chance for agencies to reclaim the high groundof brand stewardship that some marketers argue they have let slip away inthe past two decades.

The emergence of Internet advertising is likely to have wider implicationsfor business than many imagine. Its eƒfects will not be confined to the onlineworld, but will extend to traditional marketing activities and processes. Forthose who look closely, Internet advertising holds many more opportunitiesand risks than is commonly assumed. And the payoƒf waiting for those whorise to the challenge will more than justify the eƒforts required.



MARKETING TO THE DIGITAL CONSUMER

“Many marketers treat online marketing like traditionaladvertising by developing an application, launching it, andthen stepping back from it. However, the eƒforts required tomaintain a vibrant digital marketing application do not stopat launch. As a result, some marketers have significantlyunderestimated ongoing content maintenance resourcerequirements. An emerging trend to control the cost andcomplexity associated with content management is to shiƒtthe burden of creating content onto the user. For example, anathletic shoe company could allow sporting associations touse its site to publicize upcoming sporting events. Assuminginterest on the part of the associations, this solution may bothlower the marketer’s cost of creating content, which is noweƒfectively borne by the users, leverage a unique capability of interactive media by acting as a central distribution pointfor perishable information, and provide value to consumersthrough one-stop shopping for hard-to-get information.”

Alexa Kierzkowski, Shayne McQuade, Robert Waitman, and Michael Zeisser, The McKinsey Quarterly, 1996 Number 3

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El Impacto Real de la Publicidad en Internet

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